Henny Ray Abrams/AP
- The Fed can pause rate hikes as financial conditions have tightened, the head of fixed income at JPMorgan Asset Management said.
- "They've told us they're data-dependent. Look at the data. They've won. They don't need to pile on," Bob Michele told Bloomberg TV.
- Inflation expectations have been falling, and banks have been making it harder to access credit.
The Federal Reserve can take a break from hiking interest rates as it's done enough tightening of financial conditions to cool inflationary pressures, a division head at JPMorgan Asset Management said Wednesday before the Fed released its March decision.
"They've told us they're data-dependent. Look at the data. They've won. They don't need to pile on," Bob Michele, chief investment officer of fixed income at JPMorgan Asset Management, told Bloomberg TV in an interview.
"Look at inflation. If you look at month-to-date 10-year TIPS, they're down 30 basis points to 2.1%. Inflation expectations are coming down. Look at the University of Michigan consumer sentiment [survey.] One-year inflation expectations are down the most in two years," he said.
Last week, the survey found inflation expectations falling to 3.8%, the lowest since April 2021.
The Federal Open Market Committee led by Chair Jerome Powell appears likely to raise interest rates for a ninth consecutive time on Wednesday. Traders are largely expecting a rate hike of 25 basis points, pushing the benchmark rate to 4.75%-5%, the highest since 2007.
Expectations for the Fed's next move on interest rates swung widely this month partially because of the collapse and seizure of Silicon Valley Bank, a prominent lender to tech startups. A $1.8 billion loss from selling a bond portfolio burned by higher interest rates triggered a run on SVB's deposits.
The Fed and other financial regulators protected uninsured depositors at SVB and Signature Bank, another seized lender, to prevent wider contagion.
Michele noted the Federal Reserve's roots trace back to preventing bank runs, while also alluding to the role its tightening cycle has played in the current crisis.
"They pushed it to the point where they had to step in and stop a run on banks," said Michele. "So they've achieved the maximum pressure they needed to bring inflation down. It's happening. It's in the data. You pause, and you wait."
Meanwhile, surveys of senior loan officers show banks have been making it more difficult for potential borrowers to get access to credit. After the banking industry's distress over the past two weeks, "there's no going back on that," Michele said.
"We're all doing the work for the Fed anyway. They can hit the pause button. The banks are still tightening credit conditions and … non-bank lenders are as well."